Nifty 50 (22,041) and Bank Nifty (46,385) appreciated last week and gained 1.2 per cent and 1.6 per cent respectively. The derivatives data, which appeared mixed a fortnight ago, now seem to have aligned to the positive side, at least for Nifty 50. Below is the analysis of the same.

Nifty 50

The February Nifty futures advanced 1.2 per cent over the past week and ended at 22,098 on Friday. Thus, along with the underlying index, it has closed above the 22,000-mark. However, the chart shows that the contract is now hovering around a resistance at 22,100.

The option chain of the weekly options show that 22100-call have considerable Open Interest (OI) outstanding, supporting the fact that it is a barrier. After this, 22300- and 22600-call’s OI looks substantial, indicating these two are subsequent resistance levels. Although 22,300 is likely to be a minor one.

That said, the broader trend is bullish and the chances of Nifty futures surpassing the hurdle at 22,100 is high. Over the last week and also since the beginning of February, there has been long build-up in Nifty futures. That is, as the contract went up, the cumulative OI too increased.

Also, the 22000-put option has significant OI outstanding, implying that this is a strong support. The chart of Nifty futures, too, indicates that the price band of 21,930-22,000 is a support.

All the above factors denote that the positioning of futures and options traders are inclined towards a rally. We suggest going long on Nifty futures once the resistance at 22,100 is decisively breached.

Alternatively, one can consider buying at-the-money (ATM) monthly call options in order to reduce the margin obligation and the risk since the premium paid is the maximum loss with respect to option buying. One can also consider the bull call spread on Nifty 50.

Derivative outlook
Long build-up in Nifty futures
Short covering in Bank Nifty futures
Execute bullish strategies post breakout
Bank Nifty

The February expiry Bank Nifty futures rallied 1.3 per cent over the past week as it ended at 46,503 on Friday. As it happened, the cumulative OI dropped, indicating short covering. Hence, it remains with the 45,000-47,000 range within which it has been trading for the past month.

The weekly options chain of the index shows that there has been considerable selling of 46500-call option. Traders sell calls if they expect the underlying not to rise above that particular strike. Also, the futures contract is currently hovering near the range-top. These two factors hint at a possible decline in Bank Nifty futures.

Bank Nifty futures chart and the option chain show that notable supports are at 46,000 and 45,000.

That said, if the broader market sentiment turns bullish, it can help Bank Nifty futures breakout of 47,000. In such a case, it can rally to 47,700 and then to 49,000, potential resistance levels.

From a trading perspective, we suggest staying out for now and initiate bullish trades when Bank Nifty futures surpasses the resistance at 47,000. Based on an individual’s risk appetite, one can opt between buying futures and buying call options (preferably ATM strikes). Call spreads can also be an option if one wishes to have the risk and reward well defined at the time of initiation of the trade.

Notably, the options Put Call Ratio of both indices are greater than 1, showing a bullish bias.